(23 MAY 2018)DAILY MARKET BRIEF 2:Strong yen

JPY continues to gain on risk aversion trading. UISDJPY has fallen sharply to 109.90 from 110.95 on persistence selling pressure. Outside of the obviously macro environment risk which are generally “media-cycle” led suggesting short-term volatility and swings, there is the weak Japan economic fundamentals. Recent inflation slowdown is clearly disappointing for the BoJ and continues to present a significant challenge for the central bank. Japanese core inflation is well below 1% which is the lowest in the G10. Even the weaker JPY is unlikely to generate meaningful inflation forcing the BoJ to lowers is inflations forecast again. Barring a momentous economic acceleration or positive inflation shock, it’s unlikely that the BoJ will meet its 2% target. We continue to see the BoJ moving away from stick adherence to monetary policy steering within Abenomics. The BoJ appears to surrendered on reaching its inflation target. The closer we move toward the BoJ end-game the more market will be pricing in a strong JPY. Deceleration of BoJ focus on normalizations and lagging EUR suggest a constructive trade on long EURJPY.